Measures for the Administration of Information Disclosure of Commercial Franchises

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Measures for the Administration of Information Disclosure of Commercial Franchises

Decree No.16 of the Ministry of Commerce of the People's Republic of China No.16

Measures for the Administration of Information Disclosure of Commercial Franchises have been discussed and adopted at the 6th executive meeting of the Ministry of Commerce on April 6 2007. They are hereby promulgated and shall come into effect as of May 1, 2007.

Minister Bo Xilai April 30, 2007

Measures for the Administration of Information Disclosure of Commercial Franchises

Article 1 For the purpose of safeguarding the legitimate rights and interests of franchisers and franchisees, these Measure are formulated under the Regulations for the Administration of Commercial Franchises (hereinafter referred to as the Regulations)

Article 2 These Measures apply to commercial franchise activities within the territory of the People's Republic of China.

Article 3 The associated company herein refers to the parent company of the franchiser, subsidiary company which the franchiser owns directly or indirectly all or the controlling interest thereof, company which the same owner owns all or the controlling interest with the franchiser directly or indirectly.

Article 4 The franchiser shall disclose the information as stipulated in Article Five in writing to the franchisee within at least 30 days before the day the franchise contract is signed based on the requirement of the Regulations, and provide the franchise contract.

Article 5 The information disclosed by the franchiser shall include the following: 1. The basic information on the franchiser and franchise activities (1) Franchiser's name, address, contact details, legal representative, general manager, registered capital, scope of business, and the number of regular chains as well as their addresses and phone numbers. (2) A brief introduction to the commercial franchise activities of the franchiser. (3) Basic information on archival filing of the franchiser. (4) If the franchiser's associated company provides products and services to the franchisee, the associated company's basic information shall be disclosed. (5) Information on the bankruptcy and application for bankruptcy of the franchiser or of its associated company in the latest five years. 2. The basic information on the business resources of the franchiser (1) Provide the franchisee with the information on business resources available such as registered trademark, enterprise symbol, patent, proprietary technology, and business mode, etc. (2) If the owner of the above-mentioned business resources is the associated company of the franchiser, then the basic information of the associated company shall be disclosed, and the franchiser shall also explain how to handle the franchise system once the concession contract is rescind. (3) The information about business resources of the franchiser (or its associated company) involving in litigation or arbitration, such as the registered trademark, enterprise symbol, patent, and proprietary technology, etc. 3. Basic information on the franchise expenditure (1) If the types, amount, criteria and payment mode of the fees collected by the franchiser or on behalf of the third party cannot be disclosed, then the franchiser shall explain the reason; if the standards to collect fees are not consistent, then the franchiser shall disclose the maximum and minimum standards, and explain the reason. (2) The collection, return conditions, return time, and return mode of the margin. (3) If the franchisee is required to pay the fee before the franchise contract is made, then the franchiser shall explain in writing to the franchisee the use of the fee and the conditions and mode to return the fee. 4. Information on prices and conditions of the products, services and equipment provide for the franchisee. (1) Whether the franchisee must purchase products, services or equipment from the franchiser (or its associated company), as well as the prices and conditions. (2) Whether the franchisee must purchase products, services or equipment from the suppliers appointed or approved by the franchiser. (3) Whether the franchisee can choose other suppliers and the conditions that the suppliers must be equipped with. 5. Information on providing continuous services to the franchisee. (1) Detailed content, way of provision and implementation plans for professional training, including the location, approach and length of the training. (2) Detailed content of the technical support, the catalogue of operation manual of franchise, and the number of pages. 6. The methods and content of guidance and supervision over the franchise activities of the franchisee. (1) The franchiser's methods and content of guidance and supervision over the franchise activities of the franchisee, the franchisee's obligations, and the consequences of failure to fulfill them. (2) Whether the franchiser shall shoulder joint liability for the complaints and compensations of the consumers, and how to take the liability. 7. Information on investment budget of the franchise network (1) Expenditure on the investment budget may include the following: initial fee; training fee; real estate and decoration fee, procurement fee of equipment, office supplies, furniture, etc; initial inventory; water, electricity and gas fees; fees needed to obtain license and other government approvals; and working capital. (2) The statistical source and basis for estimation of the above-mentioned fees 8. Information on the franchisee within the territory of China. (1) Information on the present and estimated number of franchisees, geographical distribution, scope of license, whether or not having exclusive license region (if yes, the estimated detailed scope shall be explained) (2) Information on the evaluation of performance of the franchisee, the franchiser shall disclose information on the actual or estimated average sales volume, cost, gross profit, and net profit of the franchisee, and shall explain the source of the above-mentioned information, length and franchise network involved, if the information is estimated, then the franchiser shall explain the basis for estimation, and point out that the actual performance of the franchisee may be different from the estimation. 9. Abstracts of the franchiser's financial and accounting reports and of the audit reports in the last two years audited by the accounting firms or auditing firms. 10. Information on major litigation and arbitration concerning franchises of the franchiser in the latest five years. (1) Major litigation and arbitration refer to litigation and arbitration involving litigation fare of more than RMB 500, 000 (2) The basic information, location of the litigation and the results shall be disclosed. 11. Information on the record of major illegal operation of the franchiser and its legal representative, records of major illegal operation. (1) Where the fine imposed by the competent administrative law enforcement department is not less than 300, 000 but more than 500, 000. (2) Where the franchiser and its legal representative have been sentenced to criminal responsibility. 12. Franchise Contract (1) Sample franchise contract (2) If the franchiser requires franchisee to sign with the franchiser (or the associated company) other franchise contracts, this type of sample contract shall be provided at the same time.

Article 6 The franchiser may not have any cheating and misleading practices in the promotion activities, and the advertisement may not include the content about the individual franchisee's profit from the franchise activities.

Article 7 Before the franchiser discloses information to the franchisee, the former has the right to require the latter to sign Non-Disclosure Agreement.

Article 8 After the franchiser discloses information to the franchisee, the franchisee shall provide the franchiser with a return receipt in duplicate, after the franchisee signs the receipt, each party retains one copy.

Article 9 If the franchiser hides the information that shall be disclosed or discloses false information, the franchisee may rescind the franchise contract.

Article 10 If the franchiser violates these Measures, the franchisee has the right to report to the commerce authority, if the case is confirmed after investigation, the commerce authority shall order the franchiser to make rectification, and impose a fine no less than RMB 10, 000 but no more than RMB 50,000; if the circumstances are serious, the fine shall be no less than RMB 50, 000 but no more than RMB 10, 000, and a public announcement shall be made.

Article 11 The power to interpret these Measures shall remain with the Ministry of Commerce.